Why rooftop solar could get less rewarding the more UK homes install it

Rooftop solar will deliver smaller financial returns as more UK households install panels, according to a report published by the think tank Onward on Tuesday (18 August).

Levies, network charges and policy costs are recovered on each unit of electricity a household buys from the grid.

A home generating its own power buys fewer units and contributes less towards those shared costs, which are then recovered from other bill payers instead.

Onward’s report notes that this is effectively financial engineering and compares it to standing up in a football stadium for a better view – a tactic that works for the individual but fails once everyone does it.

The report predicts a response if rooftop solar scales up significantly. Suppliers or policymakers would cut export tariff rates or raise standing charges to recover the costs that solar households no longer cover.

Export rates already increasing

Suppliers set their own export rates under the Smart Export Guarantee, the scheme that replaced the Feed-in Tariff in January 2020.

Every licensed supplier with more than 150,000 customers must offer an export tariff, but no minimum rate exists, and suppliers can change rates at short notice.

Octopus Energy cut its Outgoing Fixed rate from 15p per kWh to 12p on 1 March. Rates across the market range from around 3p to more than 25p per kWh, with the highest offers restricted to customers who buy their panels or their import electricity from the same supplier.

3 million more solar homes by 2030

The government published the Warm Homes Plan on 20 January, committing £15 billion to upgrade up to 5 million homes by 2030.

Rooftop solar sits at the centre of the plan, with a target to triple the number of homes with panels by fitting up to three million more rooftops.

Low-income households can have solar and battery installations worth £9,000 to £12,000 covered in full, and the plan sets out government-backed zero and low-interest loans for everyone else.

The Future Homes Standard will make solar panels standard on new builds.

Left vs right debate

Onward is a centre-right think tank and the report carries a foreword by Claire Coutinho, Shadow Secretary of State for Energy.

Its wider recommendations include repealing the Climate Change Act 2008, removing electricity generators from the UK Emissions Trading Scheme and ending policy support for new renewable projects from 2030.

The author is Ed Hezlet, Head of Energy at Onward and previously an equity research analyst at J.P. Morgan Asset Management.

The government’s position is that solar is one of the best available technologies for cutting household costs.

The Warm Homes Plan states that rooftop solar will play a vital role in bringing bills down, and Ofgem chief Executive Jonathan Brearley described the plan as an important step towards improving energy efficiency in UK buildings.

Export payments make up only part of the return on a domestic system. Most of the value comes from using the electricity directly rather than selling it, which saves the household the full import unit rate.

Homes without a battery typically use about 40% of what they generate and export the rest, while a battery lifts self-consumption to around 75%.

Onward’s analysis does not dispute those savings, but it does question how long the current export rates and cost structure will hold as installation numbers rise.

The UK ranks second worst in the world for solar potential, according to World Bank data cited in the report.

British electricity demand peaks in winter, when solar output is at its lowest, and the report notes that solar reduces gas use in summer without reducing the need for firm generation capacity in the winter months.

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